What is the Difference Between Probate and Non-Probate Assets?
A key concept to understand when planning your estate is the difference between probate and non-probate assets. Probate assets include your personal effects, home, checking account and even your car. These things are called “probate” assets because they pass to your heirs or beneficiaries after death through the probate process.
Not all assets are probate assets, however. In fact, for many people the majority of their estate is in the form of non-probate assets. Life insurance, IRA accounts, trust assets and payable on death (POD) accounts all constitute non-probate assets that do not go through probate after the owner’s death.
Why does this matter?
- Non-probate assets avoid the probate process. If all of your assets are non-probate assets then probate may not be required after you die. This is appealing to many as it avoids the administrative hurdles, costs and delay of probate, providing your loved ones with an easier transition.
- Non-probate assets are not governed by your will. That’s right- what your will says about distribution of your estate does not determine what happens to non-probate assets when you die. Instead, the terms of the asset itself dictate what happens to the funds after your death. It’s critical, therefore, to understand what assets you have constitute non-probate assets and be sure to keep beneficiary designations up-to-date. That life insurance policy that you bought after you had your first kid but before you had your second? Depending on the terms of the policy itself, there is a good chance that only the named beneficiary (i.e. your first child) will be entitled to the funds after you die if the beneficiary designations are not later updated.
For some, coordinating non-probate assets will be make a greater impact than the will itself. Because of this, when we create an estate plan, we will talk to you about your accounts and how to name beneficiaries in a way that is consistent with your estate plan and future goals.